NOT FOR OFFICIAL PUBLICATION

UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.

MEMORANDUM DECISION

CATTANI, Judge.

¶1 The Pinnacle at Desert Peak Condominium Association ("Pinnacle") appeals from the superior court's entry of summary judgment in favor of Desert Peak Homeowners' Association ("Desert Peak") on Desert Peak's breach of contract claim relating to Pinnacle's obligation to pay a portion of Desert Peak's ongoing costs to maintain common areas available to both Desert Peak and Pinnacle. For reasons that follow, we conclude that there are questions of fact regarding whether the contract between Desert Peak and Pinnacle is so one-sided as to be unconscionable, and whether Pinnacle has been charged a disproportionately high amount for its share of costs. Accordingly, we reverse the grant of summary judgment and remand for further proceedings.

FACTS AND PROCEDURAL BACKGROUND

¶2 Desert Peak is the homeowners association of a centrally-planned development in Phoenix. Developer CHI Construction Company ("CHI")—Desert Peak's declarant—established the community by recording the Desert Peak declaration of covenants, conditions, restrictions, and easements ("CC&Rs") in June 2006.

¶3 Pinnacle is the unit-owners' association of a condominium complex that is geographically adjacent to the Desert Peak community. CHI was the original landowner and developer of the Pinnacle condominium complex, but its affiliate D.R. Horton completed the development. D.R. Horton—Pinnacle's declarant—established the condominium association by recording the Pinnacle CC&Rs in July 2007.

¶4 Before Pinnacle was developed, CHI and Desert Peak (then under CHI's control) entered into an agreement, recorded in September 2006, creating mutual easements and obligations for the Pinnacle and Desert Peak communities. This Access, Maintenance and Common Area Easement and Use Fee Agreement ("Agreement") granted Pinnacle's prospective unit owners an access easement over common areas in Desert Peak. It granted Desert Peak an access easement for maintenance on Pinnacle's portion of a shared drainage channel, but also obligated Desert Peak to provide maintenance for the entire channel. The Agreement expressly provided that the easements and reciprocal obligations created would run with the land, binding and benefitting Desert Peak, Pinnacle, and the communities' respective lot owners and unit owners, and it allowed modification or termination only with the written and recorded agreement of both Desert Peak and Pinnacle.

¶5 Although Pinnacle did not exist at the time, the Agreement specifically contemplated that CHI would create Pinnacle, that Pinnacle would be made subject to the terms of the Agreement, and that Pinnacle would automatically become an additional party to the Agreement when formed. The Agreement further provided that Pinnacle would pay a use fee to offset a portion of Desert Peak's cost of maintaining the shared areas. This use fee was set at 34.8% of Desert Peak's "total annual budget amounts . . . related to the [shared common areas] and [shared drainage channel]" and totaled approximately $210,252. The Agreement imposed the use fee as an obligation of Pinnacle as well as of each unit owner.

¶6 To ensure compliance with the payment obligation, the Agreement required Pinnacle's CC&Rs to mandate an assessment to cover payment of the use fee. Pinnacle's CC&Rs thus expressly included the use fee as a required element of its annual budget, to be assessed pro rata against unit owners.

¶7 Pinnacle's CC&Rs also expressly stated that the condominium complex was subject to the terms of the Agreement, informing purchasers that each condominium unit enjoyed a use easement over Desert Peak common areas and that Pinnacle and the unit owners would be responsible for paying the use fee. The CC&Rs conditioned unit ownership on acknowledgement of and consent to the terms of the Agreement:

¶8 Pinnacle paid the use fee from 2008 through April 2013; Pinnacle was controlled by D.R. Horton (not the unit owners) most of that period. Several months after the unit owners took control of the condominium association's board of directors, Pinnacle notified Desert Peak that it was unilaterally terminating the Agreement effective May 2013; it has not paid the use fee since that time.

¶9 Desert Peak sued Pinnacle for breach of contract based on the failure to pay the monthly use fee. On cross motions for summary judgment, Pinnacle did not dispute the existence of a contract or that it stopped paying the use fee, but rather argued it had properly unilaterally terminated the Agreement without penalty under Arizona Revised Statutes ("A.R.S.") § 33-1245.1 The superior court concluded that § 33-1245 did not apply under the circumstances and accordingly entered summary judgment in favor of Desert Peak.

¶10 Pinnacle timely appealed. We have jurisdiction under A.R.S. § 12-2101(A)(1).

DISCUSSION

¶11 Summary judgment is only appropriate if there are no genuine disputes as to any material fact and the moving party is entitled to judgment as a matter of law. Ariz. R. Civ. P. 56(a); Orme Sch. v. Reeves, 166 Ariz. 301, 305 (1990). We review the superior court's grant of summary judgment de novo. United Bank of Ariz. v. Allyn, 167 Ariz. 191, 195 (App. 1990). We consider de novo issues of statutory interpretation, as well as the interpretation of restrictive covenants and other contracts. Ariz. Bank & Tr. v. James R. Barrons Tr., 237 Ariz. 401, 404, ¶ 7 (App. 2015); Powell v. Washburn, 211 Ariz. 553, 555-56, ¶ 8 (2006). Similarly, the superior court's assessment of whether the undisputed facts support unconscionability—one aspect of § 33-1245—is an issue of law subject to de novo review. Harrington v. Pulte Home Corp., 211 Ariz. 241, 252, ¶ 40 (App. 2005).

¶12 Pinnacle argues that it properly terminated the Agreement under the authority of A.R.S. § 33-1245, and that the superior court thus erred by concluding it had breached the Agreement. Section 33-1245 grants condominium associations the right to terminate certain contracts that were entered before unit owners assumed control of the association's board of directors:

Pinnacle argues that, because the Agreement was entered before the unit-owners-controlled board took office, the Agreement is voidable both as a contract between Pinnacle and an affiliate of its declarant and because the Agreement is not bona fide and was unconscionable when entered. See A.R.S. § 33-1245(A)(2), (3).

¶13 The Agreement is not, however, a voidable contract under § 33-1245(A)(2). That subsection applies only to contracts between "the association"—that is, the condominium association, see A.R.S. § 33-1202(4)—and its own declarant or an affiliate thereof. Here, the Agreement was entered between CHI and Desert Peak; Pinnacle, the relevant condominium association, was not involved. To the extent the Agreement now binds Pinnacle, it acts as a contract between Pinnacle and Desert Peak; although Pinnacle is a condominium association, Desert Peak is a neighboring homeowners' association, not Pinnacle's declarant or an affiliate. Accordingly, the Agreement is not "between the [condominium] association and a declarant or an affiliate of a declarant" as required by subsection (A)(2), and the superior court did not err by concluding that Pinnacle could not terminate the Agreement on this ground.

¶14 Pinnacle also argues that it properly terminated the Agreement under § 33-1245(A)(3) because the contract was unconscionable to the (prospective) unit owners when it was entered.2 Unconscionability is generally divided into two facets: (1) procedural unconscionability, which addresses "unfair surprise . . . or other things that mean bargaining did not proceed as it should" and (2) substantive unconscionability, which addresses "the relative fairness of the obligations assumed" by reference to the actual terms of the contract. Maxwell v. Fid. Fin. Servs. Inc., 184 Ariz. 82, 88-89 (1995) (citation omitted). Substantive unconscionability is characterized by "contract terms so one-sided as to oppress or unfairly surprise an innocent party, an overall imbalance in the obligations and rights imposed by the bargain, and significant cost-price disparity." Id. at 89.

¶15 Pinnacle claims the Agreement was procedurally unconscionable because the Agreement was entered before Pinnacle existed, and Pinnacle was never given an opportunity to negotiate on its own behalf. But § 33-1245(A) presupposes that the challenged contract was entered by a proxy of the declarant, without the participation of an owner-controlled condominium association. Accordingly, this arguable procedural unfairness is not alone enough to establish unconscionability under § 33-1245(A)(3).

¶16 With regard to substantive unconscionability, however, we conclude that Pinnacle established a question of fact as to whether the Agreement was so one-sided as to be voidable under subsection (A)(3). First, although the Agreement grants Pinnacle unit owners use and enjoyment of Desert Peak's common areas, as a practical matter, a substantial portion of those common areas provide benefits disproportionately (or perhaps solely) to Desert Peak homeowners. As Desert Peak acknowledged at oral argument, the smaller-scale portions of the common areas—that is, smaller landscaped areas interspersed throughout the community as opposed to parks or playgrounds—provide aesthetic benefits rather than benefits relating to physical access. But Pinnacle is set off in a self-contained parcel on the border of the Desert Peak community, and the condominium complex includes its own aesthetic common elements for which the Pinnacle unit owners are solely responsible. Although the Agreement obligates Pinnacle to pay a proportional share of the common area expenses, the record shows a fact question as to whether it receives a proportional share of the benefits.

¶17 Moreover, although the Agreement appears to set the use fee at a proportional percentage of the expense of maintaining the shared areas,3 the record contains evidence of an apparent overcharge. The Agreement states that the use fee represents 34.8% of only those costs related to the common areas:

(Emphasis added.) Pinnacle maintains, however, that it has been charged 34.8% of Desert Peak's total annual budget, not just costs related to the common areas and drainage channel.

¶18 Although Desert Peak agrees that the use fee should be calculated based on common-area-related expenses, the budget documents in the record suggest that the use fee actually charged has been 34.8% of Desert Peak's budget as a whole, without distinguishing between costs associated with the common areas and other costs. Such an apparent overcharge may be evidence that Desert Peak had interpreted the Agreement to require payment of a pro rata share of its budget at large, which could support a finding of substantive unconscionability. At the very least, this discrepancy must be resolved by the factfinder.

¶19 Finally, the Agreement does not provide Pinnacle with any voice in establishing the budget (and thus the fee it must pay) or in controlling the use of the common areas. For instance, Desert Peak's board of directors is authorized by its CC&Rs to modify the use of any or all of the common areas; Pinnacle, however, is not part of Desert Peak and is not represented on Desert Peak's board of directors. The Agreement thus creates an ongoing obligation for Pinnacle to pay the use fee even if Desert Peak unilaterally increases the budget or changes the common areas in a way that prejudices Pinnacle unit owners.

¶20 Although, as the superior court reasoned, "[e]veryone who is entitled to enjoyment of the property is subject to the fee," the record establishes a question of fact as to whether the rights and responsibilities created by the Agreement are so one-sided as to render the Agreement unconscionable and thus voidable under § 33-1245(A)(3). Accordingly, we reverse the judgment granted to Desert Peak and remand for further proceedings consistent with this decision.

¶21 Desert Peak requests an award of attorney's fees and costs on appeal under A.R.S. § 12-341.01 and under the Agreement. Because Desert Peak has not prevailed on appeal, we deny its request for attorney's fees. Pinnacle seeks an award of costs and of attorney's fees under A.R.S. § 12-341.01. In an exercise of our discretion, we deny Pinnacle's request for fees without prejudice to Pinnacle requesting such fees before the superior court at the conclusion of the case. As the prevailing party, Pinnacle is entitled to its costs on appeal upon compliance with ARCAP 21.

CONCLUSION

¶22 The judgment is reversed and the cause remanded for further proceedings consistent with this decision.